OCTOBER TERM, 1998
Syllabus
HUMANA INC. ET AL.
v. FORSYTH ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No. 97-303. Argued November 30, 1998-Decided January 20,1999
Between 1985 and 1988, plaintiffs-respondents, beneficiaries of
group health insurance policies issued by defendant-petitioner
Humana Health Insurance of Nevada, Inc. (Humana Insurance),
received medical care at a hospital owned by defendant-petitioner
Humana Inc. Humana Insurance agreed to pay 80% of the
beneficiaries' hospital charges over a designated deductible. The
beneficiaries bore responsibility for payment of the remaining 20%.
But pursuant to a concealed agreement, the complaint in this action
alleged, the hospital gave Humana Insurance large discounts on the
insurer's portion of the hospital's charges for care provided to
the beneficiaries. As a result, Humana Insurance paid significantly
less than 80% of the hospital's actual charges for the care that
beneficiaries received, and the beneficiaries paid significantly
more than 20%. The beneficiaries brought suit in Federal District
Court, alleging that Humana Insurance and Humana Inc. had violated
the federal Racketeer Influenced and Corrupt Organizations Act
(RICO) through a pattern of racketeering activity consisting of
mail, wire, radio, and television fraud. The Humana defendants
moved for summary judgment, citing §2(b) of the McCarran-Ferguson
Act, which provides: "No Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by any State for
the purpose of regulating the business of insurance, or which
imposes a fee or tax upon such business, unless such Act
specifically relates to the business of insurance." RICO does not
proscribe conduct that Nevada's laws governing insurance permit.
But the federal and state remedial regimes differ. Both provide a
private right of action. RICO authorizes treble damages; Nevada law
permits recovery of compensatory and punitive damages. The District
Court granted summary judgment for the Humana defendants. The Ninth
Circuit reversed in relevant part. In its
Merchants Home
decision, handed down after the District Court rejected the
beneficiaries' right to sue under RICO in this case, the Ninth
Circuit adopted a "direct conflict" test for determining when a
federal law "invalidate[s], impair[s], or supersede[s]" a state
insurance law. As declared in
Merchants Home, the McCarran-
Ferguson Act does not preclude application of a federal statute
prohibiting acts that are also prohibited under state insurance
laws. Guided by
Merchants Home, and assuming, inaccu-
300
Syllabus
rately, that Nevada law provided for administrative remedies
only, the Ninth Circuit held that the McCarran-Ferguson Act did not
bar the policy beneficiaries' suit under RICO.
Held: Because RICO advances the State's interest in
combating insurance fraud, and does not frustrate any articulated
Nevada policy or disturb the State's administrative regime, the
McCarran- Ferguson Act does not block the respondent policy
beneficiaries' recourse to RICO in this case. Pp. 306-314.
(a) The McCarran-Ferguson Act precludes application of a federal
statute in face of state law "enacted ... for the purpose of
regulating the business of insurance," if the federal measure does
not "specifically relat[e] to the business of insurance," and would
"invalidate, impair, or supersede" the State's law. RICO is not a
law that "specifically relates to the business of insurance." This
case therefore turns on the question whether RICO's application to
the employee beneficiaries' claims would "invalidate, impair, or
supersede" Nevada's laws regulating insurance. Under the standard
definitions, RICO's application in this action would neither
"invalidate"-i.
e., render ineffective without providing a
replacement rule-nor "supersede"-i.
e., displace while
providing a substitute rule-Nevada's insurance laws. The key
question, then, is whether RICO's application here would "impair"
Nevada's law. The Court rejects the Humana petitioners' suggestion
that the word "impair," in the McCarran-Ferguson Act context,
signals Congress' intent to cede the field of insurance regulation
to the States, saving only instances in which Congress expressly
orders otherwise. If Congress had meant generally to preempt the
field for the States, Congress could have said either that "no
federal statute [that does not say so explicitly] shall be
construed to
apply to the business of insurance" or that
federal legislation generally, or RICO in particular, would be
"applicable to the business of insurance [only]
to the extent
that such business is
not regulated by state law."
Moreover, § 2(b)'s second prohibition, barring construction of
federal statutes to "invalidate, impair, or supersede" "any [state]
law ... which imposes a fee or tax upon [the business of
insurance]," belies any congressional intent to preclude federal
regulation merely because the regulation imposes liability
additional to, or greater than, state law. Were this not so,
federal law would "impair" state insurance laws imposing fees or
taxes whenever federal law imposed additional fees or greater tax
liability. Under the federal system of dual taxation, however, it
is scarcely in doubt that generally applicable federal fees and
taxes do not "invalidate, impair, or supersede" state insurance
taxes and fees within the meaning of § 2(b) where nothing precludes
insurers from paying both. On the other hand, the
301
Court is not persuaded that Congress intended a green light for
federal regulation whenever the federal law does not collide head
on with state regulation. The dictionary defines "impair" as to
weaken, make worse, lessen in power, diminish, relax, or otherwise
affect in an injurious manner. The following formulation seems to
capture that meaning and to construe, most sensibly, the text of §
2(b): When federal law does not directly conflict with state
regulation, and when application of the federal law would not
frustrate any declared state policy or interfere with a State's
administrative regime, the McCarranFerguson Act does not preclude
its application.
Shaw v.
Delta Air Lines, Inc.,
463 U. S. 85,
101-103, supports the view that to "impair" a law is to hinder its
operation or "frustrate [a] goal" of that law. The Court's standard
also accords with
SEe v.
National Securities, Inc.,
393 U. S. 453,
463, where, as here, federal law did not "directly conflict with
state regulation," application of federal law did not "frustrate
any declared state policy," nor did it "interfere with a State's
administrative regime." Pp. 306-311.
(b) Applying the foregoing standard to the facts of this case,
the Court concludes that suit under RICO by policy beneficiaries
would not "impair" Nevada law and therefore is not precluded by the
McCarranFerguson Act. Nevada provides both statutory and common-law
remedies to check insurance fraud. The Nevada Unfair Insurance
Practices Act is a comprehensive administrative scheme that
prohibits various forms of insurance fraud and misrepresentation;
gives Nevada's Insurance Commissioner the authority to issue
charges if there is reason to believe the Act has been violated, to
issue cease and desist orders, and to administer fees; and
authorizes victims of insurance fraud to pursue private actions
under Nevada law for violations of a number of unfair insurance
practices, including misrepresentation of pertinent facts or
insurance policy provisions relating to coverage. Moreover, the Act
is not hermetically sealed; it does not exclude application of
other state laws, statutory or decisional. Specifically, Nevada
case law recognizes tort actions against insurers for breach of a
common-law duty to negotiate with insureds in good faith and to
deal with them fairly. Furthermore, aggrieved insureds may be
awarded punitive damages if a jury finds clear and convincing
evidence that the insurer is guilty of oppression, fraud, or
malice, and those damages may exceed the treble damages available
under RICO. In sum, there is no frustration of Nevada policy in the
RICO litigation at issue. RICO's private right of action and treble
damages provision appears to complement Nevada's statutory and
common-law claims for relief. The Court notes both that Nevada
filed no brief at any stage of this lawsuit urging that application
of RICO would frustrate any state policy, or interfere with the
State's
302
administrative regime, and that insurers, too, have relied on
RICO when they were the fraud victims. Pp. 311-314.
114 F.3d
1467, affirmed.
GINSBURG, J., delivered the opinion for a unanimous Court.
James W Colbert III argued the cause for petitioners.
With him on the briefs were Robert N. Eccles, Linda J. Smith,
Neil K. Gilman, and Dennis L. Kennedy.
G.
Robert Blakey argued the cause for respondents. With
him on the brief was J.
Randall Jones.
Deputy Solicitor General Wallace argued the cause for the United
States as amicus curiae urging affirmance. With him on the brief
were Solicitor General Waxman, Assistant Attorney General Hunger,
Jeffrey A. Lamken, Anthony J. Steinmeyer, and Howard S. Scher.
*
JUSTICE GINSBURG delivered the opinion of the Court. This case
concerns regulation of the business of insurance by the States, as
secured by the McCarran- Ferguson Act, 59 Stat. 33, as amended, 15
U. S. C. § 1011
et seq., and the extent to which federal
legislation, specifically, the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U. S. C. § 1961
et seq., is
compatible with state regulation. The controversy before us stems
from a scheme employed by petitioner Humana Health Insurance of
Nevada, Inc. (Humana Insurance), a group health insurer, to gain
discounts for hospital services which the insurer did not disclose
and pass on to its policy beneficiaries. The scheme is alleged to
violate both Nevada law and RICO. Under the McCarran-
*
James F.
Fitzpatrick and
Nancy L. Perkins
filed a brief for the Alliance of American Insurers et al. as
amici curiae urging reversal.
Briefs of
amici curiae urging affirmance were filed for
the National Association of Insurance Commissioners by
Gregory
B. Stites; for the N ational Fair Housing Alliance by
Stephen Mark Dane; for Trial Lawyers for Public Justice, P.
C., by
Sarah Posner; for United Policyholders by
Eugene R. Anderson and
John A. MacDonald; and for
Betty Cordial et al. by
Ellen G.
Robinson and
Peter G.
Gallanis.
Franklin G.
Burt filed a brief for the Consumer
Credit Insurance Association as
amicus curiae.
303
Ferguson Act, the federal legislation may be applied if it does
not "invalidate, impair, or supersede" the State's regulation. 15
U. S. C. § 1012(b).
The federal law at issue, RICO, does not proscribe conduct that
the State's laws governing insurance permit. But the federal and
state remedial regimes differ. Both provide a private right of
action. RICO authorizes treble damages; Nevada law permits recovery
of compensatory and punitive damages. We hold that RICO can be
applied in this case in harmony with the State's regulation. When
federal law is applied in aid or enhancement of state regulation,
and does not frustrate any declared state policy or disturb the
State's administrative regime, the McCarran- Ferguson Act does not
bar the federal action.
I
Plaintiffs in the District Court, respondents in this Court, are
beneficiaries of group health insurance policies issued by Humana
Insurance. Between 1985 and 1988, plaintiffsrespondents received
medical care from the Humana Hospital-Sunrise, an acute care
facility owned by codefendant (now copetitioner) Humana Inc. Humana
Insurance agreed to pay 80% of the policy beneficiaries' hospital
charges over a designated deductible. The beneficiaries bore
responsibility for payment of the remaining 20%. But pursuant to a
concealed agreement, the complaint in this action alleged, the
hospital gave Humana Insurance large discounts on the insurer's
portion of the hospital's charges for care provided to the policy
beneficiaries.1 As a result,
1 These discounts were alleged to have ranged between 40% and
96%.
See 827 F. Supp. 1498, 1503 (Nev. 1993). For example, in a given
case, Humana Insurance might have received a bill for only $550 on
a $5,000 gross hospital charge. The beneficiary, however, would
have received a bill for 20% of the undiscounted rate of $5,000, or
$1,000. Humana Insurance would have paid only 35% of the total bill
($550 out of $1,550), while the beneficiary would have paid 65%.
Under the 80%/20% arrangement, Humana Insurance should have paid
$1,240 (80% of $1,550), while the beneficiary should have paid
$310. See id., at 1508; Brief for United States as
Amicus Curiae
5-6.
304
Humana Insurance paid significantly less than 80% of the
hospital's actual charges for the care that policy beneficiaries
received, and the beneficiaries paid significantly more than 20% of
those charges.2
The employee beneficiaries brought suit in the United States
District Court for the District of Nevada,3 alleging that Humana
Insurance and Humana Inc. violated RICO through a pattern of
racketeering activity consisting of mail, wire, radio, and
television fraud.4 Defendants Humana Insurance and Humana Inc.
moved for summary judgment, citing § 2(b) of the McCarran-Ferguson
Act, which provides:
"No Act of Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of
regulating the business of insurance, or which imposes a fee or tax
upon such business, unless such Act specifically relates to the
business of insurance." 15 U. S. C. § 1012(b).
The District Court granted the motion. In that court's view,
RICO's private remedies, including the federal statute's treble
damages provision, 18 U. S. C. § 1964(c), so exceeded Nevada's
administrative penalties for insurance fraud, see
infra, at
311-312, that applying RICO to the alleged conduct would have been
"tantamount to allowing Congress to intercede in an area expressly
left to the states under
2 State investigation of the scheme, launched by Nevada's
Attorney General, terminated when Humana Insurance and Nevada's
Insurance Commissioner entered into a consent decree under which
the insurer paid a fine of $50,000.
3 The complaint separated plaintiffs into two classes, a
"Co-Payor Class" comprising employee beneficiaries, and a "Premium
Payor Class" comprising employers who purchased the policies. See
114 F.3d
1467, 1472 (CA9 1997). Only the employees' claims have been
placed at issue here.
4 The complaint also presented claims under the Employee
Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as
amended, 29 U. S. C. § 1001
et seq., and § 2 of the Sherman
Act, 26 Stat. 209, as amended, 15 U. S. C. § 2. The disposition of
those claims is not germane to the issue on which this Court's
review was sought and granted.
305
the McCarran-Ferguson Act," 827 F. Supp. 1498, 1521-1522 (Nev.
1993).5
The Ninth Circuit reversed in relevant part. See
114 F.3d
1467, 1482 (1997). In
Merchants Home Delivery Serv.,
Inc. v.
Frank B. Hall &
Co., 50 F.3d
1486 (1995), a decision handed down after the District Court
rejected the policy beneficiaries' right to sue under RICO in this
case, the Court of Appeals adopted a "direct conflict" test for
determining when a federal law "invalidate[s], impair[s], or
supersede[s]" a state law governing insurance. As declared in
Merchants Home, the McCarran-Ferguson Act does not preclude
"application of a federal statute prohibiting acts which are also
prohibited under a state's insurance laws."
Id., at 1492.
Guided by
Merchants Home, and assuming that Nevada law
provided for administrative remedies only, the Ninth Circuit held
that the McCarran- Ferguson Act did not bar suit under RICO by the
Humana Insurance policy beneficiaries. See 114 F. 3d, at 1480.
Circuit courts have divided on the question presented: Does a
federal law, which proscribes the same conduct as state law, but
provides materially different remedies, "impair" state law under
the McCarran- Ferguson Act? 6 We granted certiorari to address that
question. 524 U. S. 936 (1998).
5 Both the District Court and the Court of Appeals inaccurately
projected Nevada law as allowing for administrative remedies only.
See
infra, at 311-313.
6 Compare
Merchants Home Delivery Serv., Inc. v.
Frank
B. Hall &
Co., 50 F.3d
1486, 1492
(CA9 1995), and
NAACP v.
American
Family Mut. Ins. Co., 978 F.2d
287, 297
(CA7 1992) ("[S]tate and federal rules that are
substantively identical but differ in penalty do not conflict with
or displace each other."), with
Doe v.
Norwest Bank
Minnesota, N. A., 107 F.3d
1297,
1307 (CA8 1997) ("[T]he intrusion of RICO's
substantial damage provisions into a state's insurance regulatory
program may so impair the state law as to bar application of
RICO."), and
Kenty v.
Bank One, Columbus, N. A.,
92 F.3d
384, 392 (CA6 1996) ("The different liability under Ohio law
for violations, as well as different standards of proof necessary
to demonstrate misrepresentations, means that RICO does impair the
ability of Ohio to regulate [unfair and deceptive acts].").
306
II
Prior to our decision in
United States v.
South-Eastern Underwriters Assn., 322 U. S. 533 (1944), we
had consistently held that the business of insurance was not
commerce. See,
e. g., Paul v.
Virginia, 8 Wall. 168,
183 (1869) ("Issuing a policy of insurance is not a transaction of
commerce."); see also
South-Eastern, 322 U. S., at 544, n.
18 (collecting cases relying on the
Paul generalization).
The business of insurance, in consequence, was largely immune from
federal regulation. See
St. Paul Fire &
Marine Ins.
Co. v.
Barry, 438 U. S. 531, 539 (1978) ("[T]he States
enjoyed a virtually exclusive domain over the insurance
industry."). In
SouthEastern, we held for the first time
that an insurance company doing business across state lines engages
in interstate commerce. See 322 U. S., at 553. In accord with that
holding, we further decided that the Sherman Act applied to the
business of insurance. See id., at 553-562.
Concerned that our decision might undermine state efforts to
regulate insurance, Congress in 1945 enacted the McCarran-Ferguson
Act. Section 1 of the Act provides that "continued regulation and
taxation by the several States of the business of insurance is in
the public interest," and that "silence on the part of the Congress
shall not be construed to impose any barrier to the regulation or
taxation of such business by the several States." 15 U. S. C. §
1011. In § 2(b) of the Act-the centerpiece of this case-Congress
ensured that federal statutes not identified in the Act or not yet
enacted would not automatically override state insurance
regulation. Section 2(b) provides that when Congress enacts a law
specifically relating to the business of insurance, that law
controls. See § 1012(b). The subsection further provides that
federal legislation general in character shall not be "construed to
invalidate, impair, or supersede any law
307
enacted by any State for the purpose of regulating the business
of insurance."
Ibid.7
The McCarran-Ferguson Act thus precludes application of a
federal statute in face of state law "enacted ... for the purpose
of regulating the business of insurance," if the federal measure
does not "specifically relat[e] to the business of insurance," and
would "invalidate, impair, or supersede" the State's law. See
Department of Treasury v.
Fabe, 508 U. S. 491, 501
(1993). RICO is not a law that "specifically relates to the
business of insurance." This case therefore turns on the question:
Would RICO's application to the employee beneficiaries' claims at
issue "invalidate, impair, or supersede" Nevada's laws regulating
insurance?
The term "invalidate" ordinarily means "to render ineffective,
generally without providing a replacement rule or law." Brief for
United States as
Amicus Curiae 17, n. 6 (citing
Carter v.
Virginia, 321 U. S. 131, 139 (1944)
(Black, J., concurring)). And the term "supersede" ordinarily means
"to displace (and thus render ineffective) while providing a
substitute rule." Brief for United States as
Amicus Curiae
17, n.6 (citing
Illinois Commerce Comm'n v.
Thomson, 318
U. S. 675, 682 (1943)). Under these standard definitions,
RICO's
7 Section 2(b) also provides that "after June 30, 1948, the Act
of July 2, 1890, as amended, known as the Sherman Act, and the Act
of October 15, 1914, as amended, known as the Clayton Act, and the
Act of September 26, 1914, known as the Federal Trade Commission
Act, as amended [15 U. S. C. 41 et seq.], shall be applicable to
the business of insurance to the extent that such business is not
regulated by State Law." 15 U. S. C. § 1012(b). Section 4 of the
Act provides that "[n]othing contained in this chapter shall be
construed to affect in any manner the application to the business
of insurance of the Act of July 5, 1935, as amended, known as the
National Labor Relations Act [29 U. S. C. 151 et seq.], or the Act
of June 25, 1938, as amended, known as the Fair Labor Standards Act
of 1938 [29 U. S. C. 201 et seq.], or the Act of June 5, 1920,
known as the Merchant Marine Act, 1920 [46 App. U. S. C. 861 et
seq.]." § 1014.
308
application to the policy beneficiaries' complaint would neither
"invalidate" nor "supersede" Nevada law.
The key question, then, is whether RICO's application to the
scheme in which the Humana defendants are alleged to have
collaborated, to the detriment of the plaintiff policy
beneficiaries, would "impair" Nevada's law. The answer would be
"no" were we to read "impair," as the policy beneficiaries suggest,
to be "interchangeabl[e]" with "invalidate" and "supersede." Brief
for Respondents 14; see Brief for United States as
Amicus
Curiae 17, n. 6 (describing the use of the three terms as an
"instanc[e] of lawyerly iteration"). The answer would also be "no"
if we understood "impair" to mean "the displacement of some portion
of a statute or its preclusion in certain contexts."
Id., at
14. This is so because insurers can comply with both RICO and
Nevada's laws governing insurance. These laws do not directly
conflict. The acts the policy beneficiaries identify as unlawful
under RICO are also unlawful under Nevada law. See
infra, at
311-313.
On the other hand, the answer would be "yes" were we to agree
with Humana Insurance and Humana Inc. that the word "impair," in
the McCarran-Ferguson Act context, signals the federal legislators'
intent "to withdraw Congress from the field [of insurance] absent
an express congressional statement to the contrary." Brief for
Petitioners 10. Under that reading, "impair" would convey "a very
broad proscription against applying federal law where a state has
regulated,
or chosen not to regulate, in the insurance
industry."
Merchants Home, 50 F. 3d, at 1491 (emphasis in
original). See also Reply Brief 4 (McCarran-Ferguson Act "precludes
federal law that is at material variance with state insurance
law-as to substantive prohibitions, procedures or remedies.").
We reject any suggestion that Congress intended to cede the
field of insurance regulation to the States, saving only instances
in which Congress expressly orders otherwise. If
309
Congress had meant generally to preempt the field for the
States, Congress could have said, as the Ninth Circuit noted:
"No federal statute [that does not say so explicitly] shall be
construed to
apply to the business of insurance."
Merchants Home, 50 F. 3d, at 1492 (emphasis in original)
(internal quotation marks omitted); see Brief for United States as
Amicus Curiae 24 ("The Act does not declare that 'No Act of
Congress shall apply to the business of insurance unless such Act
specifically relates thereto.' "). Alternatively, Congress could
have provided, as it did with respect to the Sherman, Clayton, and
Federal Trade Commission Acts, see 15 U. S. C. § 1012(b), that
federal legislation generally, or RICO in particular, would be
"applicable to the business of insurance [only]
to the extent
that such business
is not regulated by State Law,"
ibid. (emphasis added).
Moreover, § 2(b)'s second prohibition bears attention in this
regard. That proscription, barring construction of federal statutes
to "invalidate, impair, or supersede" "any [state] law ... which
imposes a fee or tax upon [the business of insurance]," belies any
congressional intent to preclude federal regulation merely because
the regulation imposes liability additional to, or greater than,
state law. Were this not so, federal law would "impair" state
insurance laws imposing fees or taxes whenever federal law imposed
additional fees or greater tax liability. Under our federal system
of dual taxation, however, it is scarcely in doubt that "generally
applicable federal fees and taxes do not 'invalidate, impair, or
supersede' state insurance taxes and fees within the meaning of
Section 2(b) where nothing precludes insurers from paying both."
Brief for United States as
Amicus Curiae 26.
While we reject any sort of field preemption, we also reject the
polar opposite of that view, i.
e., that Congress intended a
green light for federal regulation whenever the federallaw does not
collide head on with state regulation. The dictionary definition of
"impair" is "[t]o weaken, to make
310
worse, to lessen in power, diminish, or relax, or otherwise
affect in an injurious manner." Black's Law Dictionary 752 (6th ed.
1990). The following formulation seems to us to capture that
meaning and to construe, most sensibly, the text of § 2(b): When
federal law does not directly conflict with state regulation, and
when application of the federal law would not frustrate any
declared state policy or interfere with a State's administrative
regime, the McCarranFerguson Act does not preclude its application.
See Brief for National Association of Insurance Commissioners as
Amicus Curiae 6-7.
Our decision in
Shaw v.
Delta Air Lines, Inc.,
463 U. S. 85
(1983), is similar in tenor. In that case, we considered whether a
New York law forbidding discrimination in employee benefit plans on
the basis of pregnancy was preempted by ERISA. State agencies and
officials, appellants in
Shaw, argued that the State's law
was not preempted; they relied on ERISA § 514(d), which provides
that ERISA's preemption clause shall not be "construed to alter,
amend, modify, invalidate, impair, or supersede any law of the
United States." 29 U. S. C. § 1144(d). The state agencies and
officials maintained that preempting the state law would impair the
administration of Title VII of the Civil Rights Act of 1964, 78
Stat. 253, 42 U. S. C. § 2000e
et seq., as amended in 1978
by the Pregnancy Discrimination Act, 92 Stat. 2076, 42 U. S. C. §
2000e(k), for under the enforcement scheme Title VII accommodates,
state remedies serve to promote compliance with federal
antidiscrimination prescriptions. See 463 U. S., at 101-102.
We held in
Shaw that the New York law was preempted only
to the extent it prohibited practices lawful under Title VII. See
id., at 103. To the extent the New York law prohibited practices
also prohibited under federal law, we explained, the New York law
was not preempted; the blanket preemption urged by the employer
appellees in
Shaw, we pointed out, would "impair" Title VII
by "frustrat[ing] the
311
goal of encouraging joint state/federal enforcement of [that
federal measure]."
Id., at 102.
Shaw thus supports
the view that to "impair" a law is to hinder its operation or
"frustrate [a] goal" of that law.
Our standard accords with
SEe v.
National Securities,
Inc., 393 U. S.
453 (1969). In that case, we upheld, in face of a McCarran-
Ferguson Act challenge, the Securities and Exchange Commission's
authority to unwind an insurance company merger that the Arizona
Director of Insurance had approved. Our opinion pointed to the
absence of any "direct conflict": "Arizona has not commanded
something which the Federal Government seeks to prohibit. It has
permitted respondents to consummate the merger; it did not order
them to do so."
Id., at 463. But that statement did not
stand alone. We also observed that "any 'impairment' in [that] case
[was] a most indirect one."
Ibid. And we concluded:
"The paramount federal interest in protecting shareholders [was]
perfectly compatible with the paramount state interest in
protecting policyholders."
Ibid. There, as here, federal law
did not "directly conflict with state regulation," application of
federal law did not "frustrate any declared state policy," nor did
it "interfere with a State's administrative regime."
Supra,
at 310.
Applying the standard just announced to the facts of this case,
we conclude that suit under RICO by policy beneficiaries would not
"impair" Nevada law and therefore is not precluded by the
McCarran-Ferguson Act. Nevada provides both statutory and
common-law remedies to check insurance fraud. The Nevada Unfair
Insurance Practices Act, Nev. Rev. Stat. § 686A.010
et seq.
(1996), patterned substantially on the National Association of
Insurance Commissioners' model Unfair Trade Practices Act,S is a
comprehensive administrative scheme that prohibits various forms of
in sur-
8 See 4 National Association of Insurance Commissioners, Model
Laws, Regulations and Guidelines 880-1 (1995).
312
ance fraud and misrepresentation.9 Under this legislation,
Nevada's Insurance Commissioner has the authority to issue charges
if there is reason to believe the Act has been violated, see §
686A.160, and may issue cease and desist orders and administer
fees, see § 686A.183.
Victims of insurance fraud may also pursue private actions under
Nevada law. The Unfair Insurance Practices Act authorizes a private
right of action for violations of a number of unfair insurance
practices, including "[m]isrepresenting to insureds or claimants
pertinent facts or insurance policy provisions relating to any
coverage," § 686A.310(1)(a). See § 686A.310(2) ("In addition to any
rights or remedies available to the commissioner, an insurer is
liable to its insured for any damages sustained by the insured as a
result of the commission of any act set forth in subsection 1 as an
unfair practice."). Moreover, the Act is not hermetically sealed;
it does not exclude application of other state laws, statutory or
decisional. Specifically, Nevada law provides that an insurer is
under a common-law duty "to negotiate with its insureds in good
faith and to deal with them fairly."
Ainsworth v.
Combined Ins. Co. of Am., 104 Nev. 587, 592, 763 P. 2d 673,
676 (1988); see
United States Fidelity &
Guaranty
Co. v.
Peterson, 91 Nev. 617, 620, 540 P. 2d 1070, 1071
(1975) (recognizing tort action against insurance company for
breach of implied covenant of good faith and fair dealing).lO
9 See,
e. g., Nev. Rev. Stat. § 686A.030 (1996)
(misrepresentation and false advertising); § 686A.040 (publication
of false information); § 686A.070 (falsification of records and
financial statements); §§ 686A.281-686A.289 (fraudulent claims); §
686A.291 (insurance fraud).
10 The existence of private rights of action under state law
dilutes the force of the assertion, made in an
amicus brief,
that a decision affirming the Ninth Circuit's judgment would cause
insurers to be reluctant to settle with state commissioners to
avoid compromising defenses in RICO litigation. See Brief for
Consumer Credit Insurance Association as
Amicus Curiae 5.
Presumably, insurers would be equally reluctant to settle with
state commissioners to avoid compromising defenses in state
litigation.
313
Furthermore, aggrieved insured parties may be awarded punitive
damages if a jury finds clear and convincing evidence that the
insurer is guilty of "oppression, fraud or malice." Nev. Rev. Stat.
§ 42.005(1) (1995). Nevada's punitive damages statute places
certain limits on those damages-three times the amount of
compensatory damages if they are more than $100,000, and $300,000
if compensatories are less than $100,000. See §§ 42.005(1)(a), (b).
But the same law adds that these limits do not apply to claims
against "[a]n insurer who acts in bad faith regarding its
obligations to provide insurance coverage." § 42.005(2)(b)Y
Accordingly, plaintiffs seeking relief under Nevada law may be
eligible for damages exceeding the treble damages available under
RICO.12
In sum, we see no frustration of state policy in the RICO
litigation at issue here. RICO's private right of action and treble
damages provision appears to complement Nevada's statutory and
common-law claims for relief. In this regard, we note that Nevada
filed no brief at any stage of this lawsuit urging that application
of RICO to the alleged conduct would frustrate any state policy, or
interfere with the State's administrative regime. Cf.
NAACP
v.
American Family
11 See also Nev. Rev. Stat. § 42.007(2) (1996) (limiting
punitive damages liability by employers for wrongful acts of
employees except in "an action brought against an insurer who acts
in bad faith regarding its obligations to provide insurance
coverage").
12 At oral argument, counsel for petitioners Humana Insurance
and Humana Inc. suggested that application of RICO would impair
state law, even though that law provided for punitive damages,
because under Nevada law, punitive damages may not be imposed when
doing so would threaten the solvency of the defendant. Tr. of Oral
Arg. 5-6. While Nevada law does appear to prohibit punitive damages
that would render a defendant insolvent, see
Nevada Cement
Co. v.
Lemler, 89 Nev. 447, 452, 514 P. 2d 1180, 1183
(1973) (noting that "[i]deally the punitive allowance should be in
an amount that would promote the public interest without
financially annihilating the defendant" and that "the wrongdoer may
be punished, but not destroyed"), the record contains no evidence
of insolvency here. See Tr. of Oral Arg. 21.
314
Mut. Ins. Co., 978 F.2d
287, 297
(CA7 1992) ("No official of Wisconsin has
appeared in this litigation to say that a federal remedy under the
Fair Housing Act would frustrate any state policy."). We further
note that insurers, too, have relied on the statute when they were
the fraud victims. See,
e. g.,
Aetna Casualty Surety
Co. v.
P &
B Autobody, 43
F.3d 1546, 1551 (CA1 1994); see also Brief for United
Policyholders as
Amicus Curiae 19-21.
***
Because RICO advances the State's interest in combating
insurance fraud, and does not frustrate any articulated Nevada
policy, we hold that the McCarran-Ferguson Act does not block the
respondent policy beneficiaries' recourse to RICO in this case.
Accordingly, for the reasons stated in this opinion, the judgment
of the Court of Appeals for the Ninth Circuit is
Affirmed.
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